International Journal of Science and Research (IJSR) ISSN: 2319-7064 ResearchGate Impact Factor (2018): 0.28 | SJIF (2018): 7.426 Volume 8 Issue 7, July 2019 www.ijsr.net Licensed Under Creative Commons Attribution CC BY Impact of Performance Management Systems on Employee Performance Eli Suherli, Hanggoro 1 , Nur Wening 2 , Tutut Herawan 3 1, 2, 3 Universitas Teknologi Yogyakarta, Jalan Ringroad Selatan Jombor Yogyakarta Abstract: Performance management systems are designed to improve employee performance. However, the introduction of the Balance Scorecard redesigned the objectives of the performance management system. This study examines the moderating effect of using Balance Scorecard on the impact of performance management systems on employee performance. This research was conducted at manufacturing companies listed on the stock exchange in Indonesia. The research tool is a survey that includes 192 top managers from 63 registered manufacturing companies. The findings show that the use of Balance Scorecard moderates the impact of performance management systems on employee performance. This implies that the use of Balance Scorecard strategically complements and enhances the relationship between employee performance and performance management systems. This study shows that the Balance Scorecard must be used as a multi-dimensional method for measuring performance and as a strategic management system to improve employee performance. Keywords: Performance Management System, Balance Scorecard, Employee Performance. 1. Introduction This is not an overemphasis that performance management is indispensable for organizational effectiveness (Cardy, 2004), because it functions as a process that ensures that employees work hard to achieve organizational mission and goals (Gruman & Saks, 2011) and therefore must be the top priority manager (Lawler, 2008). Despite the fact that one third of employees believe that their company's performance management processes help them improve their performance, there is not enough focus on performance management and studies relating to employee satisfaction in the company (Pulakos, 2009). However, recently for years and based on the modern problems facing these companies, they have begun to refocus their attention on performance management systems (PMS) (Buchner, 2007; Gruman & Saks, 2011) to improve the performance of their employees. Most of these companies now combine their PMS with strategic management systems such as the Balance Scorecard (BSC) that will clarify their strategies and translate them into achievement (Kaplan & Norton, 1992; 1996; 2001). The argument of this paper is that the use of BSC as a strategic management system influences how PMS improves employee performance because the BSC is used as a tool to assess and manage organizational performance (Braam & Nijssen, 2004). Therefore, this paper discusses the moderating effects of BSC on the relationship between PMS and employee performance. The remainder of this paper first focuses on the literature review and the development of hypotheses, and then presents a research methodology that includes statistical models and testing procedures. Reports on empirical results are provided with a discussion of findings. Finally, a conclusion is reached with provisions for implications, limitations, and suggestions for future studies. 2. Literature Review of Hypotheses Development 2.1 Performance Management System and Employee Performance According to Rudman (2003), PMS is a gradual integration of HRM activities and organizational business objectives, in which HR activities and management are working together to impact collective and individual behavior and to support the strategy of the organization. Rudman (2003) also argued that it was important that PMS fit in with the organizational culture since PMS is integrated and completed cycle for managing performance. Thus, the stress on PMS is that it unceasingly improves organizational performance, which is achieved by enhanced employee performance (Macky & Johnson, 2000). Similarly, Lawler (2003) suggests that the objectives of PMS are to motivate performance, enhance development of individual’s skills, build culture performance, determine individual promotion, eliminate individual poor performance, and assist in implementing business strategies. Furthermore, Zhang (2012) highlighted the major aims of PMS as to ensure that the work performed by employees accomplished the work of the company; employees have a clear understanding of quality and quantity expected from them; employees receive ongoing information about how effectively they are performing relative to expectations; awards and salary increases based on employee performance are distributed accordingly; opportunities for employee development are identified; and employee performance that does not meet expectations is addressed‖. Meanwhile, a reliable performance measures for assets or resources, and their strength values. Employee performance is essential to organizational performance. Basically, employee performance is regarded as an employee and what employee does not do; which may include presence at work, quality of productivity, quantity of productivity, timeliness of productivity, and level of cooperation (Güngör, 2011). According to Macky and Johnson (2000), organizational performance can also be improved by enhanced individual employee performance. Deadrick and Gardner (1997) view employee performance as a function of a particular time period. In their view, it means that performance signifies a distribution of outcomes accomplished, which can be Paper ID: ART20199446 10.21275/ART20199446 571